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Tax Tip: Crystal Ball Tax Planning

Posted: July 27, 2012, 12:45 p.m EDT

By Mark E. Battersby

Will this be the last year of the Bush-era tax cuts? A number of tax breaks favorable to pet stores—and their owners—either expired at the end of 2011 or are scheduled to expire at the end of this year. They include the Bush-era tax cuts, the alternative minimum tax patch, the temporary payroll tax cut and other temporary provisions, many of which are commonly referred to as “tax extenders.”

Although Congress may retroactively reinstate some or all of these provisions, an agreement before the November election seems unlikely. The biggest “hit” facing businesses, at least in terms of estimated tax savings, include the so-called “Bonus” depreciation write-off originally created in 2002 as a temporary economic incentive that allows businesses to immediately deduct or write off a large portion of the cost of qualifying assets. A whopping 100 percent bonus depreciation allowance was in effect through the end of 2011, decreased to 50 percent for 2012, and is scheduled to expire after Dec. 31, 2012.

The Section 179 enhanced expensing allowances that allowed businesses to take immediately deductible expense amounts of up to $500,000 for investing in qualified equipment and other business property in 2011 were reduced to $125,000 for the 2012 tax year, and will revert to $25,000 thereafter.

Uncertainty surrounds some business tax breaks
The 15-year straight-line cost recovery and eligibility for Section 179 expensing for qualified improvements to leased property, restaurant property and, of course, retail improvements expired after 2011. Beginning in 2012, such properties must be depreciated over 39 years, and are no longer eligible for Section 179 expensing.

An investment sale, such as a land or business transaction, may warrants thinking about closing the sale prior to 2013 to take advantage of the lower capital gain rates. For those filing high income returns, foregoing the 3.8-percent investment income tax set for 2013 is possible. There is also no restriction on repurchasing the same stock, as there is when sold for a loss.

Those receiving sale proceeds as payments over several years, called an “installment agreement,” may want to consider electing not to defer the gain over the installment period, but instead take the gain entirely in 2012.

As for those almost-inevitable capital losses, one strategy might be to hold off on taking capital losses until after 2012, as they could be more valuable to offset capital gains at the higher capital gain rates.

Some business owners have already decided that the uncertainty is too much to take any specific action yet this year. Many have decided to at least wait until after the November elections to think about what 2013 may bring.

However, it is important for every business to take advantage of these tax benefits while they’re still available. To help ensure future prosperity for a pet products business, owners may want to consult with a tax specialist to discuss opportunities for the 2012 tax-filing season and beyond.


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